Global Intelligence Feed

Social

Friday, February 27, 2015

2015 could be the year for turnaround investing. Russia's MICEX stock exchange broke out of its 2.5 year range, and has the potential to approach 2008 highs if near-term resistance is breached.

Investors expect higher corporate revenues in Russia given the weaker Ruble, import substitution, and State support, according to an RT article.

The table below shows MICEX outperforming other leading indices, with a 27 percent return since the start of this year.

Notice the strong returns in China and India local markets in 2014. In developed markets, investors are chasing gains in Europe this year. Japan is also flashing positive with a technical breakout in the Topix.

Monday, November 17, 2014

Aggressive measures by the BoJ and a staunch tone by PM Abe must continue to maintain pressure on the Yen. But is the recent rally enough? Japan's Economy Minister stated on Monday [Jan. 2013] that "the Yen has come to a good level....if it falls to a three-digit level it would boost import prices, weighing on the everyday life of the nation."

The market needs progress, not just rhetoric in order to play its part. PM Shinzo Abe is building up the pressure, and he has a history of speaking out about the Japanese economy, but has done little to actually show for it. Abe was elected as the 90th PM of Japan by a special session in 2006, but only served for less than a year. Perhaps now is his time to shine as he stood on a strong platform of pressuring the BoJ to tackle deflation by means of inflation with aggressive monetary stimulus and greater cooperation with the newly elected government. The monetary-fiscal cooperation interferes with the Bank's legal independence, but talks still continue amid the threat of a constitutional change to the BoJ's independence so long as the Bank abides by Abe's recommended 2% inflation target.

So called 'Abeconomics' has a direct market effect, causing a bounce off 2012 September lows in USD/JPY to extend to its current rally. The market's reaction is welcomed as a softer Yen helps boost Japanese exports and paves the way for inflation. But will this inflation come with growth? Abe's [2013] $117bn stimulus is projected to boost GDP by about 2% while creating 600,000 jobs. Nomura estimates that the the stimulus will help deliver real annualized GDP growth of 3.5%; and with ongoing disaster recovery from the 2011 tsunami, we could see more government-led growth. Economists worry that this is a big gamble for a sustained recovery. Nikkei Business Daily cites the growing probability of large spending in rural regions and the government's ability to prioritize projects. This is why there is so much pressure on the monetary side.

In comes Shirakawa, the current BoJ Governor. Shirakawa announced an additional $128bn as part of the Bank's monetary easing programs in the fall [2012]. Japan's total spent on asset-buying programs has now past the $1tn mark, which is quite excessive. Meanwhile, the Japanese economy is stuck in its fourth recession since 2000. Much of this downfall is due to a strong Yen which halts export growth. A sluggish global economy, and the struggle to recoup from the 2011 tsunami disaster is added pressure on Japan. Nevertheless, the Japanese economy has continued its constant debt buildup and fiscal woes for about 20 years now. At some point, this cannot be sustained.

The market implications are clear. Further Yen weakness could continue so long as the BoJ abides by Abe's commands. The market needs to see progress on Abe's strategy in order for the Yen to weaken by theory. The USD/JPY shorts could pave the way for the April appointment of the next BoJ Gov, creating another profit opportunity in the pair. So far, Abe is meeting this week with monetary policy experts to begin the discussion on who will be the next BoJ Gov. Abe stated that he is looking for a "bold leader...someone who shares our views." [in comes Kuroda, current BoJ Gov.]

Sunday, June 1, 2014

China will become an important source of growth for the LatAm region over the next decade. A diversified export pattern will help LatAm countries form a genuine strategic partnership with the world's fastest growing economy, according to a recent initiative by the Economic Commission for Latin America. Domestic policy should support industrial growth and commerce that will expand employment opportunities and contribute a wider mix of exports to the global economy.

Smaller Caribbean and African nations are often squeezed out of world trade through unfair competition and suppressed by three negative forces: debt, corruption, and aid. China provides an outlet for trade and economic growth. Despite a slowdown in China, its global resource grab has been resilient. LatAm countries should attract higher levels of Chinese investment as slower end-market demand weighs on raw commodity prices. This will provide a strategic opportunity to expand domestic growth while inefficiencies in China could influence a global quest for yield. The ECLAC initiative is an important first step.